Four High-performance Opportunities for CIOs

By Tor Mesøy, partner

and Jonas Arlebäck, senior manager

Information technology is becoming an ever larger part of the economy. According to Eurostat, spending on information technology went from 3.9 percent of the combined gross domestic products of Japan, the European Union and the United States in 1992 to 4.5 percent for 2001, the latest year available.

Driving this trend is the increasing importance of managing information technology to ensure high performance across business cycles. A global Accenture study shows that the companies delivering the highest total return to shareholders throughout a five-year period before, during and after the major recession in the early 1990s were the ones managing to retain profitable revenue growth rather than focusing purely on cost cutting.¹ Other Accenture research focusing on IT governance disclosed that companies with high profit margin growth allocate a significantly larger portion of their IT budget to innovation rather than IT operations, compared to companies with lower profit margin growth.²

Thinking about these research results from the CIO’s perspective brings to light the critical role CIOs will play during the next few years as companies work to capture shareholder return. But it is not easy for CIOs to drive the necessary dialogue about balancing information technology and business value. A recent Accenture survey of CIOs and CEOs found that most CIOs said their CEOs still do not actively invite them to meetings on the strategic planning of the business, but rather expect the CIOs to make “quick fixes.”³

CIOs must break through this barrier and become a welcomed and integral part of strategic business planning and that means moving away from the traditional role of a technologist. The good news is that Accenture’s continuing research into the characteristics of high-performance businesses indicates that they use information technology as a tool to innovate, creating more effective business models while simultaneously increasing productivity. Specifically, Accenture believes there are four things CIOs must do to ensure information technology contributes to helping their companies achieve high performance and in the process achieve high personal performance.

1: Focus the information technology debate on creating business value

Within the context of achieving high performance, CIOs have an opportunity to frame the information technology discussion with their fellow executives around the role information technology can play in high priority areas, such as creating growth, lowering risks and reducing cycle times.

For instance, information technology-based customer insight capabilities should be designed to grow revenue by enabling the right products to be offered to the right customers through the right channels. An example is Charles Schwab’s customer growth strategy, which was driven by a simplified information technology-enabled customer interaction process. This process included seamless customer access to products offered by Schwab’s partners and an integrated view of each customer’s information and contacts, regardless of which channels the customer used

CIOs have the responsibility to drive a shared vision for information technology that is co-owned by business and IT leadership and that provides the platform for value creation. Rolls-Royce, for example, used to make money selling spare parts to customers of its gas turbines. Increasingly it will make money from maintaining high availability and reliability of its products in service. Its business vision is selling “power by the hour.” This incorporates a vision of information and transaction systems that enables the vital supply chain, service management and engine health monitoring capabilities.

In this context it is important that the CIO brings the business value discussion to the level of shareholder value. It is not enough to use conventional methods for the return on investment of IT, which should be reserved for checkpoints for project approvals.

2: Create powerful propositions for IT-enabled change

CIOs must constantly look for opportunities to create greater value through partnering, such as with other companies in their companies’ supply chain. Consider two examples:

• Using IT capabilities to facilitate business collaboration, as when AstraZeneca researchers seamlessly collaborate on drug discoveries with external research contractors through virtual channels, and
• Collaborating to develop propositions for IT enabled change, as when Northern Europe’s largest yellow pages company, Eniro, collaborating closely with Microsoft, developed a product development tool with the potential to reduce Eniro’s product development lead time dramatically.

CIOs must focus on risk reduction, investment sharing and establishment of de facto standards, by leveraging the distinctive capabilities of third parties. Companies Scandinavia’s largest equity holding organization, known as the “Investor sphere,” co-funded the development of a joint supplier relationship solution, IBX, based on SAP software, where the interface with the suppliers became the de facto Scandinavian standard for virtual supplier interaction

A well-developed deal structure based on parameters directly linked to business value creation is one of the most important factors to achieve high performance from partnering. Outsourcing the entire IT function, or major parts of it, does not off-load the strategic burden from the CIO rather the contrary. The CIO must have a contract as well as a continuous dialogue with the outsourcing party, clearly stating what business value the outsourcing party is expected to contribute.

For example, BC Hydro and Accenture formed Accenture Business Services of British Columbia Limited Partnership to provide a wide variety of back-office functions-including customer service, procurement and office management services to BC Hydro and other North American utilities. The pioneering new entity will enable these companies to focus sole attention on managing their core utility businesses, delivering greater value to shareholders and customers at a considerably reduced cost. While information technology office functions made up the main contract components, BC Hydro also achieved substantial direct business performance enhancements by bundling IT-intensive business functions, such as call centers and finance and accounting.

3: Optimize the information technology investment agenda

Accenture research² shows companies with high profit margin growth dedicate significantly greater funds to new information technology and still spend less than their peers on information technology. The research also showed that among more than 100 European companies, those leading in productivity commonly align their IT organizations and governance with business units that may be diverse and quite autonomous. To achieve this kind of high performance, CIOs need to lead the way in creating and then implementing an IT roadmap that will ensure information technology funds are invested the right way.

This requires CIOs to keep watch so that investments are not siphoned to less important areas due to political pressure, ego, confusion or misunderstandings about the link between information technology and business value. In addition, CIOs must use training, change management and program management to mobilize all levels of the IT department to help realize the roadmap, with particular attention paid to active collaboration with their peers on the business side.

CIOs need to stay alert to external shifts that might invalidate a business case-and be ready to make adjustments. For instance, those IT infrastructure vendors who determined that the drastic drop in demand in the early days of the dot-com crash would last for years rather than months and adjusted their IT initiative portfolio accordingly are now in a much better position for profitable growth than those who did not.

4. Transform information technology to deliver improved capability and business results

New trends, tools, capabilities and architectures create an ever-fresh supply of new opportunities for improving the performance of information technology. It is the CIO’s responsibility to evaluate these opportunities and recommend the ones that will result in a significant, positive impact.

Beating competitors requires running hard and smart. Sainsbury identified large gaps between current and desired performance in capability areas such as IT governance, IT strategy development and IT solutions development. Each of these capability challenges was driving costs higher and setting the company up for further cost problems for the future. This triggered the CEO to initiate a major transformation of the business, which began with the building of a new IT system to support the demands of modern retailing and consumers. This total modernization program will help Sainsbury reach its desired destination back at the top of the United Kingdom’s food shopping.

Smaller scale transformation needs to take place continuously, as when the IT department of a large telecom provider evaluated a new, innovative Accenture tool for end-to-end testing of IT applications and estimated the return on investment in three years to be 400 percent. The proposal was implemented and the pay-back from the tool is exceeding even those estimates.

A CIO succeeding in these four areas will significantly contribute to a balanced management of the company and position the CIO’s participation in important business decisions as essential to achieving high performance. This might require a boost in the CIO skill set and often will mandate a radical change from current duties, but CIOs will gain significant business leverage. Also, on an individual level, such change can be the springboard for a long and prosperous CIO tenure.

¹ “When Good Management Shows: Creating Value in an Uncertain Economy” by the Accenture Institute for High Performance Business, 2002, available on www.accenture.com.

² “Business Value Creation through IT”, Accenture 2003.

³ “The Innovator’s Advantage: Using Innovation and Technology to Improve Business Performance” by Accenture Policy & Corporate Affairs, 2003, available on www.accenture.com.

Tor Mesøy is a partner in Accenture Strategy & Business Architecture and leads the company’s Strategic IT Effectiveness group in the Nordic region. His primary role is to work with senior executives across a wide range of industries to achieve strategic value for their companies form information technology. He can be reached at tor.mesoy@accenture.com.

Jonas Arlebäck is a senior manager in the Accenture Strategic IT Effectiveness practice. His areas of expertise include advising companies on how to establish and execute strategy to exploit new market opportunities – especially as they pertain to innovative uses of information technology. He can be reached at jonas.arleback@accenture.com.